EXHIBIT 10.1

 

Asset Purchase Agreement
( Mills )

 

This ASSET PURCHASE AGREEMENT (MILLS) is made and entered into as of July 9, 2004 (the “ Effective Date ”) by and between CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership (“ Seller ”), Debtor-in-Possession under Jointly Administered Case No. 03-11258-PHX-RJH (the “ Case ”) in the United States Bankruptcy Court for the District of Arizona (the “ Bankruptcy Court ”) filed on June 29, 2003 (the “ Petition Date ”) under Chapter 11 of Title 11 of the United States Code (the “ Bankruptcy Code ”); and INTERNATIONAL FOREST PRODUCTS LIMITED, a British Columbia corporation (“ Buyer ”).

 

Recitals :

 

A.             Seller (i) leases a lumber manufacturing facility located in Clallam County, Washington, and owns the site on which such facility is located, as well as certain related assets more fully described herein; (ii) owns a lumber manufacturing facility located in Snohomish County, Washington, and certain related assets more fully described herein; (iii) owns a lumber manufacturing facility located in Klamath County, Oregon, and certain related assets more fully described herein; (iv) carries on the business of producing lumber products at such facilities and the sale of such products; and (v) owns a property in Crook County, Oregon that is not currently used in such business.

 

B.             Crown Partners (this term and all other capitalized terms used herein having the respective meanings set forth in Section 9.1), an Affiliate of Seller, and Buyer have entered into that certain Purchase Agreement (KNRC/Equipment Leases) of even date herewith (the “ KNRC Agreement ”), pursuant to which Crown Partners has agreed to sell to Buyer, and Buyer has agreed to purchase from Crown Partners, on the terms and conditions set forth therein, all of the issued and outstanding shares of the capital stock of Klamath Northern Railway Company, an Oregon corporation (“ KNRC ”), the owner and operator of a short-line railroad that serves the Gilchrist Mill, as well as certain contracts more specifically described therein.

 

C.             Seller wishes to terminate the Port Angeles Mill Lease and to sell the Port Angeles Mill, the Marysville Mill, the Gilchrist Mill, the Business, all assets used in the Business (except as otherwise provided herein), and the Prineville Property to Buyer, and Buyer wishes to purchase the Port Angeles Mill, the Marysville Mill, the Gilchrist Mill, the Business, all assets used in the Business (except as otherwise provided herein), and the Prineville Property from Seller, in each case on the terms and conditions set forth herein.

 

Agreements :

 

In consideration of the foregoing, the mutual covenants of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows:

 

1.              Purchase and Sale .

 

1.1            Agreement to Purchase and Sell . On the terms and subject to the conditions set forth in this Agreement, Seller agrees to sell, transfer, assign, convey, and deliver to Buyer, and Buyer agrees to purchase from Seller, the following assets (collectively, the “ Purchased Assets ”), free and clear of all Liens other than Permitted Encumbrances:

 

1.1.1         Real Property . (i) The real property in Clallam County, Washington, legally described on the attached Schedule 1.1.1-1 , all improvements located thereon, and any and all easements, access rights, water rights, and other rights, privileges, and hereditaments appurtenant thereto (the “ Port Angeles Mill ”), (ii) the real property in Snohomish County, Washington, legally described on the attached Schedule 1.1.1-2 , all improvements located thereon, and any and all easements, access rights, water rights, and other rights, privileges, and hereditaments appurtenant thereto (the “ Marysville Mill ”), (iii) the real property in Klamath County, Oregon, legally described on the attached Schedule 1.1.1-3 , all improvements located thereon, and any and all easements,

 

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access rights, water rights, and other rights, privileges, and hereditaments appurtenant thereto (the “ Gilchrist Mill ”), and (iv) the real property in Crook County, Oregon, legally described on the attached Schedule 1.1.1-4 , all improvements located thereon, and any and all easements, access rights, water rights, and other rights, privileges, and hereditaments appurtenant thereto (the “ Prineville Property ”);

 

1.1.2         Real Property Leases . All right, title, and interest of Seller in and to those certain real property leases listed on the attached Schedule 1.1.2 (the “ Real Property Leases ”);

 

1.1.3         Personal Property . Those items of equipment, fixtures, and other tangible personal property listed on the attached Schedule 1.1.3 and any other tangible personal property acquired by Seller after the Effective Date and prior to the Closing Date exclusively in connection with the operation of any of the Mills or the Prineville Property (the “ Personal Property ”);

 

1.1.4         Inventory . (i) All inventories of logs, lumber, other wood products and work-in-process, and residual by-products (the “ Raw Materials, Residuals, and Finished Goods Inventory ”) held at any Mill for processing or resale, or in transit to or from any Mill, or otherwise prepaid for use at any Mill, in each case in the Ordinary Course of Business as of the Closing Time, wherever located; and (ii) all inventories of fuel, lubricants, spare parts, and shipping and other supplies owned by Seller and located at any Mill or the Prineville Property as of Closing Time (the “ Parts and Supplies Inventory ”);

 

1.1.5         Contracts . To the extent transferable and excepting any Excluded Contracts, all right, title, and interest of Seller in and to (i) those certain leases of equipment and other personal property and similar arrangements listed on the attached Schedule 1.1.5-1 (the “ Personal Property Leases ”), and (ii) those other contracts, licenses, agreements, and similar arrangements listed on the attached Schedule 1.1.5-2 and all sales and purchase orders arising out of the operation of any Mill in the Ordinary Course of Business and outstanding as of the Closing Date, including those sales and purchase orders listed on Schedule 1.1.5-3 to be delivered at the Closing (the “ Other Contracts ”);

 

1.1.6         Intangible Property . To the extent transferable, all right, title, and interest of Seller in and to (i) the licenses, permits, approvals, consents, certificates, registrations, and authorizations (governmental, regulatory, or otherwise) in respect of the Business or the Purchased Assets listed on the attached Schedule 1.1.6-1 (the “ Permits and Licenses ”), (ii) all computer software and systems located at and used in connection with the operation of the Mills, including the software and systems listed on the attached Schedule 1.1.6-2 (the “ Computer Software ”), (iii) all goodwill of the Business, phone numbers, and other intangible personal property owned or held by Seller and used solely and exclusively in connection with the operation of any of the Mills, and (iv) the Books and Records (together with the Permits and Licenses and the Computer Software, the “ Intangible Property ”);

 

1.1.7         Receivables . All right, title, and interest of Seller in and to all accounts receivable arising in the Ordinary Course of Business out of the conduct of the Business and outstanding as of the Closing Time (excluding (i) accounts receivable from other divisions of Seller, (ii) accounts receivable more than 35 days overdue, (iii) accounts receivable owed by account debtors with accounts receivable (other than the accounts receivable identified on the attached Schedule 1.1.7 ) more than 35 days overdue, and (iv) the accounts receivable identified on Schedule 1.1.7) and, subject to the provisions of Section 1.2, all causes of action relating thereto (the “ Receivables ”); and

 

1.1.8         Miscellaneous Rights, Etc . Subject to the provisions of Section 1.2, all right, title, and interest of Seller in and to (i) all other property used principally in respect of the Business or located at any of the Mills as of the Closing Date or used principally in respect of the Prineville Property and located thereon as of the Closing Date, (ii) to the extent transferable, the full benefit of all representations, warranties, guarantees, indemnities, undertakings, certificates, covenants, agreements, and all security therefor received by Seller on the purchase or other acquisition of any part of the Purchased Assets, and (iii) any rights, demands, claims, credits, allowances, rebates, causes of action, known or unknown, or rights of set-off (other than against Seller or any of its Affiliates) arising out of or relating to any of the Purchased Assets.

 

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1.2            Excluded Assets . Notwithstanding anything to the contrary in this Agreement, the Purchased Assets shall not include (collectively, the “ Excluded Assets ”) (i) all cash and cash equivalents, (ii) the Tree Farms, (iii) the Alliance Business, (iv) any Personal Property Lease or Other Contract that is terminated or expires prior to the Closing Date in accordance with its terms or with the prior written consent of Buyer, (v) except as otherwise expressly provided in this Agreement, any and all rights to the use of the name “Crown Pacific”, (vi) Seller’s rights under this Agreement and to all cash and non-cash consideration payable or deliverable hereunder, (vii) all preference or avoidance claims and actions of Seller, including any such claims or actions arising under Sections 544, 547, 548, 549, and 550 of the Bankruptcy Code, (viii) insurance proceeds, claims, and causes of action with respect to, or arising in connection with, any Excluded Asset, and (ix) those other items listed on the attached Schedule 1.2 .

 

1.3            Excluded Liabilities .              Notwithstanding anything to the contrary in this Agreement, the parties expressly acknowledge and agree that Buyer shall not assume or in any manner whatsoever be liable or responsible for any liability or obligation of Seller, or of any predecessor or Affiliate of Seller, other than the Assumed Liabilities.

 

1.4            Non-Assignment of Assigned Contracts . Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign any Assigned Contract if, after giving effect to Sections 363 and 365 of the Bankruptcy Code, an attempted assignment thereof, without obtaining a consent, would constitute a breach thereof by the assignee of such Assigned Contract, unless and until such consent shall have been obtained. If, after giving effect to provisions of Sections 363 and 365 of the Bankruptcy Code, such consent is required but not obtained, Seller shall, at Buyer’s sole cost and expense, cooperate with Buyer in any reasonable arrangement designed to provide for Buyer the benefits and obligations of or under such Assigned Contract, including the enforcement thereof for the benefit of Buyer of any and all rights of Seller against a third party thereto arising out of the breach or cancellation thereof by such third party. Seller shall seek an Order from the Bankruptcy Court providing that (i) all parties to executory contracts shall be given notice of Seller’s assignment and Buyer’s assumption of Assigned Contracts and (ii) a party’s failure to timely object to such assignment and such assumption shall be deemed to constitute such party’s consent to such assignment and assumption. Any assignment to Buyer of any Assigned Contract that, after giving effect to the provisions of Sections 363 and 365 of the Bankruptcy Code, requires the consent of any third party for such assignment as aforesaid shall be made subject to such consent being obtained.

 

2.              Purchase Price and Payment; Assumption of Liabilities; Cure Costs.

 

2.1            Purchase Price . The purchase price (the “ Purchase Price ”) payable by Buyer to Seller for the sale, transfer, assignment, conveyance, and delivery to Buyer of the Purchased Assets shall be equal to the sum of (i) Fifty-seven Million One Hundred Ninety-nine Thousand Dollars ($57,199,000), plus (ii) the Actual Price Adjustment, minus (iii) the amount of the Cure Costs, minus (iv) the amount of any reduction pursuant to Section 3.5.3, minus (v) One Million Dollars ($1,000,000) in the event of a Co-Generation Facility Shutdown Determination.

 

2.2            Deposit Escrow . Subject to the terms and conditions of a Deposit Escrow Agreement entered into among Buyer, Seller, and the Escrow Agent, in substantially the form attached as Exhibit A-1 (the “ Deposit Escrow Agreement ”), not later than the Business Day after the Effective Date, Buyer shall deliver to and deposit in trust with Chicago Title Insurance Company (the “ Escrow Agent ”) the sum of Five Million Dollars ($5,000,000) (the “ Deposit ”) in immediately available, good funds. Upon receipt of the Deposit, the Escrow Agent shall immediately deposit the Deposit into an interest-bearing account pursuant to the Deposit Escrow Agreement. On the Business Day following entry of the Approval Order by the Bankruptcy Court, Buyer shall deliver to and deposit in trust with the Escrow Agent pursuant to the Deposit Escrow Agreement the additional sum of Two Million Five Hundred Thousand Dollars ($2,500,000), which amount shall thereupon become a part of the Deposit for all purposes of this Agreement. Seller and Buyer shall each pay, and shall each be liable only for, one-half of the Escrow Agent’s escrow fees and charges in connection with the Deposit escrow account.

 

2.3            Payment of Purchase Price . Buyer shall pay the Purchase Price to Seller as follows:

 

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2.3.1         The sum of (i) Forty-one Million Four Hundred Forty-nine Thousand Dollars ($41,449,000), plus (ii) an amount equal to sixty percent (60%) of the Interim Price Adjustment, minus (iii) the amount of the Deposit and all accrued interest thereon, minus (iv) the Cure Costs, minus (v) the amount of any reduction pursuant to Section 3.5.3, minus (vi) One Million Dollars ($1,000,000) in the event of a Co-Generation Facility Shutdown Determination, shall be paid by completed wire transfer to Seller of immediately available, good funds on the Closing Date;

 

2.3.2         An amount equal to forty percent (40%) of the Interim Price Adjustment shall be deposited with the Escrow Agent pursuant to the Price Adjustment Escrow Agreement;

 

2.3.3         The amount of the Deposit and all accrued interest thereon shall be deemed to be paid by Buyer by the release of such amount on the Closing Date to or for the account of Seller by the Escrow Agent, pursuant to the Deposit Escrow Agreement;

 

2.3.4         The sum of Fifteen Million Seven Hundred Fifty Thousand Dollars ($15,750,000) shall be paid by Buyer by completed wire transfer of immediately available, good funds on the Closing Date to Wilmington Trust Company, in its capacity as Owner-Trustee under the Port Angeles Mill Lease, in consideration of the termination of the Port Angeles Mill Lease and all related documents and the conveyance to Seller of the improvements constituting the Port Angeles Mill; and

 

2.3.5         The Purchase Price shall be adjusted after the Closing to reflect any difference between the Interim Price Adjustment and the Actual Price Adjustment, as provided in Section 2.5.

 

2.4            Interim Price Adjustment . Not less than five (5) nor more than ten (10) Business Days prior to the anticipated Closing Date, Seller shall deliver a calculation of the Interim Price Adjustment to Buyer. The Interim Price Adjustment shall be based upon the Mills segment balance sheet components of Seller’s trial balance, adjusted in accordance with GAAP, as at the last day of the month immediately preceding the Closing Date unless the Closing Date occurs within the first thirteen (13) days of a month, in which case the trial balance for the previous month shall be used.  A sample calculation of the Interim Price Adjustment based upon the balance sheet components for the Mills as at April 30, 2004 is attached as Schedule 2.4 .  An amount equal to sixty percent (60%) of the Interim Price Adjustment shall be paid by Buyer to Seller at the Closing, as provided in Section 2.3.1. On the Closing Date, Buyer shall deliver to and deposit in trust with the Escrow Agent, pursuant to the terms of a Price Adjustment Escrow Agreement entered into among Seller, Buyer, and the Escrow Agent, in substantially the form attached as Exhibit A-2 (the “ Price Adjustment Escrow Agreement ”), an amount equal to the remaining forty percent (40%) of the Interim Price Adjustment (the “ Price Adjustment Deposit ”). Interest earned on the Price Adjustment Deposit shall be deemed a part of the Price Adjustment Deposit for all purposes of this Agreement. The Price Adjustment Deposit shall be applied in accordance with Section 2.5.4. Seller and Buyer shall each pay, and shall each be liable only for, one-half of the Escrow Agent’s escrow fees and charges in connection with the Price Adjustment Deposit escrow account.

 

2.5            Actual Price Adjustment .

 

2.5.1         Promptly following the Closing, Representatives of Seller and Buyer shall jointly conduct a physical count of the Raw Materials, Residuals, and Finished Goods Inventory as of the Closing Time.

 

2.5.2         Within twenty (20) Business Days after the Closing Date, Buyer shall deliver a calculation of the Actual Price Adjustment to Seller to obtain agreement with respect to the amount thereof. If Seller and Buyer agree in writing on the amount of the Actual Price Adjustment, then such amount shall be as they have agreed.

 

2.5.3         If Seller and Buyer are unable to agree upon any item(s) of the Actual Price Adjustment within twenty (20) Business Days after the Closing Date, then the item(s) in dispute shall be referred by the parties to, and shall be resolved by, the Accountants. In such event, (i) each party shall furnish to the Accountants such working papers and other documents and information relating to the disputed item(s) as are in the

 

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possession or control of such party and shall be afforded an opportunity to present to the Accountants the basis for its view with respect to the disputed item(s) and to discuss the determination of the disputed item(s) with the Accountants, (ii) the determination by the Accountants shall be final and binding on the parties, and (iii) Seller and Buyer shall each pay, and shall each be liable only for, one-half of the fees and expenses of the Accountants. Seller and Buyer shall direct the Accountants to use all reasonable efforts to complete their determination of the disputed item(s) within thirty (30) days after they are submitted to the Accountants.

 

2.5.4         On the third Business Day following (i) agreement of the parties with respect to the Actual Price Adjustment, as provided in Section 2.5.2, or (ii) if the parties are unable to reach agreement, the resolution of any disputed item(s) by the Accountants pursuant to Section 2.5.3, the appropriate adjusting payment shall be made in accordance with this Section 2.5.4. If the Actual Price Adjustment, as determined in accordance with this Section 2.5, is greater than the Interim Price Adjustment, then (a) the Price Adjustment Deposit shall be released to Seller by the Escrow Agent, and (b) Buyer shall pay the Price Adjustment Difference to Seller by wire transfer of immediately available, good funds. If the Actual Price Adjustment, as determined in accordance with this Section 2.5, is less than the Interim Price Adjustment and the Price Adjustment Difference is less than the Price Adjustment Deposit, then (c) an amount equal to the Price Adjustment Difference shall be released to Buyer from the Price Adjustment Deposit by the Escrow Agent, and (d) the remainder of the Price Adjustment Deposit shall be released to Seller by the Escrow Agent. If the Actual Price Adjustment, as determined in accordance with this Section 2.5, is less than the Interim Price Adjustment and the Price Adjustment Difference is greater than the Price Adjustment Deposit, (e) the Price Adjustment Deposit shall be released to Buyer by the Escrow Agent, and (f) Seller pay to Buyer by wire transfer of immediately available, good funds an amount equal to the excess, if any, of the Price Adjustment Difference over the Price Adjustment Deposit.

 

2.6            Allocation of Purchase Price . The Purchase Price (excluding the portion thereof attributable to the Actual Purchase Price Adjustment) shall be allocated among the Purchased Assets by Buyer and Seller in accordance with the attached Schedule 2.6 . Such allocation shall be reflected in the Tax returns (including Internal Revenue Service Form 8594) that are filed by Buyer and Seller in accordance with Section 1060 of the Code (and any similar provision of state or local law, as appropriate). Buyer and Seller agree to treat and report in filings under the Code (and any state or local law, as appropriate) (and, if necessary, to cause each of their respective Affiliates to so treat and report) the transactions contemplated by this Agreement in a manner consistent with one another.

 

2.7            Assumption of Liabilities . Buyer shall assume no liability or obligation of Seller except the liabilities and obligations set forth in this Section 2.7 (the “ Assumed Liabilities ”), which Buyer shall assume and pay, perform, and discharge in the Ordinary Course of Business in accordance with their respective terms, subject to any defenses or claimed offsets asserted in good faith against the obligee to whom such liabilities or obligations are owed:

 

2.7.1         All liabilities and obligations of Seller under the other Real Property Leases, the Assigned Contracts, and the Permits and Licenses, in each case arising from and after the Closing Date;

 

2.7.2         All liabilities and obligations of Seller under the Permitted Encumbrances arising from and after the Closing Date;

 

2.7.3         All real and personal property taxes and assessments on the Purchased Assets that relate to the period from and after the Closing Date;

 

2.7.4         Any amount which may become due after the Closing Date pursuant to RCW 82.60 and the regulations promulgated thereunder on account of sales and use taxes deferred in connection with Seller’s construction of the Port Angeles Mill, including any such taxes deferred pursuant to Washington Sales and Use Tax Deferral Certificate No. 5201-97-230, issued by the Washington Department of Revenue to Seller under registration no. 601 402 865; provided, however, that any such amount which becomes due after the Closing Date due to any action or inaction of Seller prior to the Closing Date shall not constitute an Assumed Liability; and

 

2.7.5         All other liabilities and obligations arising in connection with the ownership, operation, and use of the Purchased Assets from and after the Closing Date.

 

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2.8            Cure Costs .  Buyer agrees to satisfy, as and when due, all cure obligations due and owing under the Assigned Contracts which the Bankruptcy Court orders to be paid as a condition to Seller’s assumption and assignment to Buyer of the Assigned Contracts in accordance with Section 365 of the Bankruptcy Code (the “ Cure Costs ”). Seller’s estimate of such cure obligations as of the Effective Date is set forth on the attached Schedule 2.8 .

 

3.              Pre-Closing Matters .

 

3.1            Certain Limitations . Between the Effective Date and the Closing Date, Seller shall:

 

3.1.1         Conduct the Business and operate and maintain the Mills and the other Purchased Assets in the Ordinary Course of Business;

 

3.1.2         Maintain customary levels of all Inventories;

 

3.1.3         Maintain in force Seller’s existing insurance against loss relating to the Purchased Assets;

 

3.1.4         Maintain pre-existing credit terms and policies with respect to the sale of logs, lumber and other wood products and residual by-products;

 

3.1.5         Not sell, lease, or otherwise transfer or dispose of any Mill or any other material Purchased Assets, or any interest therein, other than transfers and dispositions, including the sale of logs, lumber, and other wood products and residual by-products, made in the Ordinary Course of Business;

 

3.1.6         Not incur or agree to incur any material liability or obligation in respect of any of the Purchased Assets or the Business without the prior written consent of Buyer, which shall not be unreasonably withheld or delayed;

 

3.1.7         Not permit or allow any Mill or any other material Purchased Assets to become subject to any additional Lien (other than Permitted Encumbrances);

 

3.1.8         Not modify or amend the terms of employment of any Business Employee or, except as provided in Section 7.1.1, terminate the employment of more than five (5) Business Employees; and

 

3.1.9         Use its commercially reasonable efforts to maintain the relations and goodwill with employees, suppliers, customers, and others having business relationships with Seller in connection with the Mills.

 

3.2            Access to Information . Between the Effective Date and the Closing Date, Seller shall, upon reasonable advance notice from Buyer to Seller, (i) afford to Buyer and its Representatives access (during normal business hours), in a manner so as not to interfere with Seller’s normal operations and subject to reasonable restrictions imposed by Seller, to the Business Employees, the Purchased Assets, the Administrative and Sales Employees, and Portland Office systems (to the extent related to the Business), and (ii) cause the Business Employees and Seller’s Representatives to furnish Buyer with such information with respect to the Business, the Purchased Assets, the Administrative and Sales Employees, and Portland Office systems (to the extent related to the Business) as may be within Seller’s possession or control and as Buyer may reasonably request. Buyer acknowledges and agrees that nothing in this Section 3.2 is intended to give rise to any contingency to Buyer’s obligation to proceed with this transaction as provided in this Agreement.

 

3.3            Damage or Destruction .

 

3.3.1         Until the Closing Time, the Purchased Assets shall remain at the risk of Seller. In the event of any damage to or destruction of any Mill or any other Purchased Asset (other than normal wear and tear) between the Effective Date and the Closing Date or if any of the Purchased Assets are appropriated,

 

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expropriated, or seized by any Governmental Authority between the Effective Date and the Closing Date (in any such case, a “ Loss ”), Seller shall give notice thereof to Buyer and Buyer shall have the option, exercisable by notice to Seller given within five (5) Business Days after Seller’s notice of such Loss:

 

(a)            To reduce the Purchase Price by an amount equal to (i) the estimated cost to repair or restore the Purchased Assets affected by such Loss (the “ Affected Assets ”) to substantially their condition immediately prior to the occurrence of such Loss or (ii) if the Affected Assets are destroyed or damaged beyond repair or are appropriated, expropriated, or seized, the replacement cost of the Affected Assets and, in either case, to complete this transaction as provided in this Agreement, in which event all insurance proceeds or other compensation payable on account of such Loss shall be retained by Seller, or

 

(b)            To reduce the Purchase Price by an amount equal to the deductible amount under any policies of insurance covering such Loss, in which event all proceeds of insurance or other compensation for such Loss shall be payable to Buyer, all right and claim of Seller in and to any such amounts shall be assigned and (if previously received by Seller) paid to Buyer at the Closing, and Buyer shall complete this transaction as provided in this Agreement without any additional reduction in the Purchase Price, or

 

(c)            If such Loss results in a failure of the condition set forth in Section 4.2.3, to terminate this Agreement in accordance with Section 8.1.2(b).

 

3.3.2         If Seller gives notice of a Loss pursuant to Section 3.3.1 within five (5) Business Days prior to the scheduled Closing Date, the Closing shall be postponed until the date which is five (5) Business Days after the later of (i) the date on which such notice is given by Seller and (ii) if applicable, the date on which any reduction to the Purchase Price is determined by an insurance adjuster pursuant to Section 3.3.3.

 

3.3.3         If Buyer elects to reduce the Purchase Price pursuant to Section 3.3.1(a), Seller and Buyer shall negotiate in good faith in an effort to agree upon the amount of such reduction. If they are unable to reach agreement within five (5) Business Days after notice of the Loss is given by Seller, then the amount of the reduction shall be determined by an independent, qualified insurance adjuster selected by the parties (or, if they are unable to agree on such selection, one appointed by the Bankruptcy Court upon application by either party).

 

3.4            H-S-R Act Matters . As soon as practicable, and in all events within fifteen (15) Business Days, after the Effective Date, each of Buyer and Seller shall make an appropriate filing of a notification and report form pursuant to the H-S-R Act with respect to the purchase of the Purchased Assets. Buyer and Seller shall thereafter supply within three (3) Business Days (or as soon thereafter as reasonably practicable) any information and documentary material that may be further requested by either the Federal Trade Commission or the Antitrust Division of the Department of Justice (the “ Antitrust Agencies ”) pursuant to the H-S-R Act, and shall use their reasonable best efforts to co-operate with the Antitrust Agencies to cause the expiration or termination of any applicable waiting periods under the H-S-R Act as soon as practicable. Each of the parties agrees not to enter into any agreement with a Governmental Authority with respect to the H-S-R waiting period except with the prior written consent of the other parties. Buyer and Seller shall each pay one half of any requisite filing fees and applicable Taxes in connection with any filing or application made pursuant to the H-S-R Act.

 

3.5            Permits and Licenses .

 

3.5.1         Promptly after the Effective Date, the parties, cooperating in good faith, shall take such steps, including the filing of any required applications with Governmental Authorities, as may be necessary (i) to effect the transfer of the Permits and Licenses to Buyer on or as soon as practicable after the Closing Date, to the extent such transfer is permissible under applicable Legal Requirements, and (ii) to enable Buyer to obtain, on or as soon as practicable after the Closing Date, any additional licenses, permits, approvals, consents, certificates, registrations, and authorizations (whether governmental, regulatory, or otherwise) as may be necessary for the lawful operation of the Mills from and after the Closing Date (the actions described in the foregoing clauses (i) and (ii) being referred to herein as the “ Permitting Process ”). Any filing or other fees and other out-of-pocket expenses associated with the Permitting Process shall be paid by Buyer.

 

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3.5.2         Buyer acknowledges that it may not be possible to complete the Permitting Process prior to the Closing Date and agrees that completion of the Permitting Process prior to the Closing Date shall not be a condition to its obligation to proceed with this transaction as provided in this Agreement. Notwithstanding the foregoing, in the event that there is a reasonable prospect that a Material Adverse Effect will occur after the Closing Date as a result of the failure to complete the Permitting Process prior to the Closing Date or as a result of requirements that are likely to be imposed on Buyer in order to complete the Permitting Process, Buyer shall be entitled to terminate this Agreement by notice to Seller given within the thirty (30) days after the Effective Date; provided, however, that if Buyer fails to give a timely notice of termination pursuant to this Section 3.5.2, it shall have no right thereafter to do so and shall be obligated to proceed with this transaction as provided in this Agreement.

 

3.5.3         In the event that Buyer, acting in good faith, determines that it will be obligated to incur capital expenditures (which, for purposes of this Section 3.5.3, shall not include (i) fees payable to Governmental Authorities in connection with the Permitting Process, (ii) legal fees and expenses incurred by Buyer in connection with the Permitting Process, or (iii) capital expenditures associated with the installation of the Cooling Tower Improvements) in excess of $500,000 in the aggregate in order to complete the Permitting Process, Buyer shall give Seller notice of such determination within thirty (30) days after the Effective Date. Such notice shall set forth in reasonable detail the purpose for and aggregate amount of the capital expenditures that Buyer reasonably anticipates will be required to complete the Permitting Process. If Buyer fails to give a timely notice pursuant to the immediately preceding sentence, it shall have no right thereafter to do so and shall be obligated to proceed with this transaction as provided in this Agreement, without a reduction in the Purchase Price pursuant to this Section 3.5.3. If Buyer gives a timely notice pursuant to the foregoing provisions of this Section 3.5.3, Seller shall thereafter give Buyer notice whether Seller is willing to reduce the Purchase Price by an amount equal to the excess of the aggregate amount of capital expenditures set forth in Buyer’s notice over $500,000; provided that Buyer acknowledges that Seller shall not be entitled to agree to a reduction in the Purchase Price by an amount in excess of $500,000 without the prior written consent of the Secured Lenders (which consent may be withheld in the sole discretion of the Secured Lenders). If Seller gives such notice within ten (10) days after Buyer’s notice is given pursuant to this Section 3.5.3, the Purchase Price shall be so reduced and Buyer shall be obligated to proceed with this transaction as provided in this Agreement. If Seller fails to give such notice within such ten (10) day period, Buyer shall thereafter have the right to terminate this Agreement by notice to Seller given within five (5) Business Days after the expiration of such ten (10) day period. If Buyer fails to give a timely notice of termination pursuant to the immediately preceding sentence, it shall have no right thereafter to do so and shall be obligated to proceed with this transaction as provided in this Agreement.

 

3.6            Exclusion of Certain Contracts . At any time and from time to time prior to the start of the Auction, Buyer may, by notice to Seller, elect to exclude any one or more of the Assigned Contracts from this transaction. Any Assigned Contract identified in such a notice (an “ Excluded Contract ”) shall no longer be an Assigned Contract. There shall be no reduction in the Purchase Price as a result of Buyer’s election to exclude any one or more of the Assigned Contracts from this transaction pursuant to this Section 3.6.

 

3.7            Bankruptcy Court Approval . Promptly following the Effective Date, Seller shall file one or more motions with the Bankruptcy Court requesting, and shall thereafter use commercially reasonable efforts to obtain, entry of an order approving the Bidding Procedures (the “ Bidding Procedures Order ”) and an order (the “ Approval Order ”) which (i) approves the sale of the Purchased Assets to Buyer on the terms and conditions set forth in this Agreement and authorizes Seller to proceed with this transaction, (ii) includes a specific finding that Buyer is a good faith purchaser of the Purchased Assets and is entitled to the protection afforded by Section 363(m) of the Bankruptcy Code, (iii) states that the sale of the Purchased Assets to Buyer shall be free and clear of all Liens whatsoever, except as expressly provided in this Agreement, and (iv) approves Seller’s assumption and assignment of the Assigned Contracts pursuant to Section 365 of the Bankruptcy Code and orders Buyer to pay any cure amounts determined by the Bankruptcy Court to be payable to the other parties to such Assigned Contracts as a condition to such assumption and assignment.

 

3.8            Buyer’s Bidding Protection and Bidding Procedures . The following bidding procedures (the “ Bidding Procedures ”) shall be employed with respect to this transaction and shall be reflected in the Bidding Procedures Order. Buyer acknowledges and agrees that the Bidding Procedures may be modified or supplemented by other customary procedures not inconsistent with the matters set forth in this Section 3.8 and the terms of this

 

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Agreement. The sale of the Purchased Assets may be subject to competitive bidding only as set forth in this Section 3.8:

 

3.8.1         Any Person that is financially capable of consummating the transaction proposed by such Person (a “ Qualifying Bidder ”) may submit a written offer (a “ Bid ”) stating that (i) such Qualifying Bidder offers to purchase, and is prepared to enter into a legally binding purchase and sale or similar agreement for the purchase of, all of the, or certain specified, Purchased Assets upon terms and conditions that are in the aggregate and under the circumstances generally no less favorable to Seller than those contained herein (as determined by Seller in its reasonable business judgment in consultation with the Secured Lenders, taking into account the assets proposed to be acquired, the impact of any delay in closing the transaction contemplated by such Bid, purchase price adjustments included therein, and any other relevant factors); (ii) such Qualifying Bidder is financially capable of consummating its proposed transaction; and (iii) such offer is irrevocable until the entry of a final order approving a sale of the assets set forth in such Bid to a Person other than such Qualifying Bidder. In addition, each Bid shall contain such financial and other information that will allow Seller to make a reasonable determination as to the Qualifying Bidder’s financial and other capabilities to consummate the transactions contemplated by such Bid. The Secured Lenders shall be deemed Qualifying Bidders and shall be exempt from the provisions of this Section 3.8.1 requiring the submission of Bids. Any Secured Lender Bid, which may include in whole or in part a credit bid for Purchased Assets that are Secured Lender collateral, shall be deemed a Qualifying Bid when made at the Acution.

 

3.8.2         In order to be a Qualifying Bid, a Bid conforming to the requirements set forth in Section 3.8.1 (except for Secured Lender Bids) must be submitted to Seller’s counsel so as to be received not later than seven (7) Business Days prior to the date scheduled by the Bankruptcy Court for the Sale Hearing (the “ Bid Deadline ”). Seller’s counsel shall promptly deliver a copy of each Qualifying Bid to Buyer’s counsel and Creditors’ Counsel. In the event that there are no Qualifying Bids, Seller shall proceed to seek Bankruptcy Court approval at the Sale Hearing for the sale of the Purchased Assets to Buyer pursuant to this Agreement.

 

3.8.3         If Seller receives one or more Qualifying Bids, Seller shall, unless otherwise ordered by the Bankruptcy Court, conduct the Auction on the date that is not less than one (1) Business Day prior to the Sale Hearing, at such time and place as may be reasonably acceptable to Seller or is otherwise approved by the Bankruptcy Court. Only Representatives of Buyer, Seller, the Secured Lenders, the Creditors Committee, and any other Qualifying Bidders shall be entitled to attend and be heard at the Auction, and only Buyer and Qualifying Bidders shall be entitled to make any subsequent offers or bids at the Auction.

 

3.8.4         Notwithstanding any other provision of this Section 3.8, pursuant to the Bidding Procedures Order, a Bid for all or substantially all of the Purchased Assets shall constitute a Qualifying Bid only if such Bid (i) in Seller’s reasonable judgment after consultation with its Representatives and the Secured Lenders, is likely to result in value to Seller (taking into account the impact of any delay in closing the transaction contemplated by such Bid, purchase price adjustments included therein, and any other relevant factors) in an amount greater than the sum of (A) the Purchase Price, plus (B) the amount of the Break-Up Fee, plus (C) the amount of the Expense Reimbursement, plus (D) Five Hundred Thousand Dollars ($500,000); (ii) contains no due diligence contingencies; (iii) is accompanied by sufficient evidence that the Person submitting it has the financial ability to consummate such transaction and contains no financing contingencies; and (iv) unless such Bid is made by one or more of the Secured Lenders, provides for a deposit in an amount at least equal to the Deposit and on terms similar to those set forth herein with respect to the Deposit.

 

3.8.5         Notwithstanding any other provision of this Section 3.8, pursuant to the Bidding Procedures Order, a Bid that excludes any one or more of the Port Angeles Mill, the Marysville Mill, the Gilchrist Mill (collectively with the KNRC Stock), or the Prineville Property shall constitute a Qualifying Bid only if such Bid (i) in Seller’s reasonable judgment after consultation with its Representatives and the Secured Lenders, is likely to result in value to Seller more than One Million Dollars ($1,000,000) in excess of that provided under this Agreement (taking into account other Qualifying Bids for less than all of the Purchased Assets, the impact of any delay in closing the transaction contemplated by such Bid, the costs of carrying any unsold assets, the purchase price adjustments included therein, the payment of the Break-Up Fee and the Expense Reimbursement to Buyer and any other relevant factors) or that would otherwise be in the best interests of the bankruptcy estates included in the Case; (ii) contains no due diligence contingencies; (iii) is accompanied by sufficient evidence that the Person submitting it

 

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has the financial ability to consummate such transaction and contains no financing contingencies; and (iv) unless such Bid is made by one or more of the Secured Lenders, provides for a deposit on terms similar to those set forth herein with respect to the Deposit and in an amount equal to not less than ten percent (10%) of the purchase price payable under such Bid, which amount shall be increased to not less than fifteen percent (15%) of the purchase price payable under such Bid on the Business Day following entry of the Approval Order.

 

3.8.6         Notwithstanding any other provision of this Section 3.8, a Bid that includes the Gilchrist Mill shall constitute a Qualifying Bid only if such Bid also includes an offer to purchase the KNRC Stock.

 

3.8.7         At the commencement of the Auction, Seller shall announce the highest or best Qualifying Bid received prior to such time. Auction bidding shall begin with such highest or best Qualifying Bid and subsequently shall continue in minimum increments of at least Two Hundred Fifty Thousand Dollars ($250,000). Subsequent Bids submitted by Buyer shall not require any additional deposit. The Auction shall be conducted by, and under the direction and control of, Seller, unless otherwise ordered by the Bankruptcy Court. Seller shall have reasonable discretion to establish and/or modify any Auction rules or procedures so as to maximize, in Seller’s reasonable judgment and in consultation with the Secured Lenders, the realization of value for the Purchased Assets except to the extent that any such newly established  or modified Auction rules are inconsistent with any provisions of this Agreement. The Auction shall be concluded by Seller no earlier than the conclusion of competitive bidding for all or certain of the Purchased Assets. Upon the conclusion of the Auction, Seller, in its reasonable judgment and in consultation with the Secured Lenders, shall announce its determination as to the highest and best Qualifying Bid(s), which may be this Agreement (as it may be modified during the Auction by any subsequent Buyer’s Bid). At the Sale Hearing, Seller shall ask the Bankruptcy Court to approve Person(s) making the highest and best Qualifying Bid(s) as the buyer(s) of the Purchased Assets, and the Secured Lenders or the Creditors Committee may dispute Seller’s determination.

 

3.9            Co-Generation Facility Shutdown Determination . Buyer shall have the right, at its sole cost and expense, to retain a licensed professional engineering firm selected by Buyer and reasonably acceptable to Seller for the purpose of determining whether, following the installation of the Cooling Tower Improvements, Buyer will be able to continue to operate the co-generation facility at such Mill in compliance with waste water discharge permits that are then available to Buyer and otherwise in accordance with all applicable Legal Requirements, including Certificates of Water Rights No. 12239 and 12240. In the event such engineering firm determines that such continued operation of such co-generation facility will not be possible, Seller shall give Buyer prompt notice of such determination, which notice shall be accompanied by a supporting report from such engineering firm. In the event Buyer gives such notice by not later than the fifth (5 ^th ) Business Day prior to the date scheduled for the Auction, a “ Co-Generation Facility Shutdown Determination ” shall be deemed to have occurred and the Purchase Price, as well as the amount payable by Buyer at the Closing, shall be reduced as provided in Sections 2.1(v) and 2.3.1(vi), respectively. In the event Buyer fails to give a timely notice pursuant to this Section 3.9, there shall be no such reduction in the Purchase Price or the amount payable by Buyer at the Closing. Buyer acknowledges and agrees (i) that nothing in this Section 3.9 is intended to give rise to any contingency to Buyer’s obligation to proceed with this transaction as provided in this Agreement, and (ii) that in no event shall a Co-Generation Facility Shutdown Determination, if made, give rise to a Material Adverse Effect for purposes of Section 3.5.2.

 

3.10          Relinquishment of Ernst Brothers Claim . After the Effective Date, Seller shall use its commercially reasonable efforts to obtain from Ernst Brothers a relinquishment of its claim of ownership with respect to Certificate of Water Right No. 12240, which is held by Seller in connection with the Gilchrist Mill; provided that Seller shall not be required to pay any compensation to Ernst Brothers in consideration of such relinquishment or to initiate litigation against Ernst Brothers in connection therewith. Buyer acknowledges and agrees (i) that nothing in this Section 3.10 is intended to give rise to any contingency to Buyer’s obligation to proceed with this transaction as provided in this Agreement, regardless of whether Seller is able to obtain a relinquishment of Ernst Brothers’ claim, and (ii) that in no event shall a failure to obtain a relinquishment of the Ernst Brothers claim give rise to a Material Adverse Effect for purposes of Section 3.5.2.

 

4.              Conditions to Closing .

 

4.1            Seller’s Conditions . Seller’s obligation to close this transaction shall be subject to and contingent upon the satisfaction (or waiver by Seller in its sole discretion) of each of the following conditions:

 

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4.1.1         All representations and warranties of Buyer set forth in this Agreement (considered collectively) and each such representation and warranty (considered individually) shall have been true and correct in all material respects as of the Effective Date and shall be true and correct in all material respects as of the Closing Date, as if made on the Closing Date.

 

4.1.2         All of the covenants and obligations that Buyer is obligated to perform or comply with pursuant to this Agreement (considered collectively) and each such covenant and obligation (considered individually) shall have been performed and complied with in all material respects.

 

4.1.3         As of the Closing Date, there shall not be in effect any Legal Requirement or any Order that prohibits the transfer of any material portion of the Purchased Assets by Seller to Buyer.

 

4.1.4         Since the Effective Date, there shall not have been commenced or Threatened against Seller or any Affiliate of Seller any Proceeding (i) seeking material Damages or other material relief in connection with any aspect of this transaction, or (ii) that could reasonably be expected to have the effect of preventing or making illegal this transaction.

 

4.1.5         Neither the consummation of this transaction nor the performance of Seller’s obligations hereunder shall, directly or indirectly (with or without notice, lapse of time, or both), contravene, conflict with, result in a violation of, or cause Seller or any Affiliate of Seller to suffer any material adverse consequence under any applicable Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Authority since the Effective Date.

 

4.1.6         H-S-R Compliance shall have been obtained.

 

4.1.7         The Bankruptcy Court shall have entered the Approval Order and such order shall not have been stayed as of the Closing Date.

 

4.2            Buyer’s Conditions . Buyer’s obligation to close this transaction shall be subject to and contingent upon the satisfaction (or waiver by Buyer in its sole discretion) of each of the following conditions:

 

4.2.1         All representations and warranties of Seller set forth in this Agreement (considered collectively) and each such representation and warranty (considered individually) shall have been true and correct in all material respects as of the Effective Date and shall be true and correct in all material respects as of the Closing Date, as if made on the Closing Date.

 

4.2.2         All of the covenants and obligations that Seller is obligated to perform or comply with pursuant to this Agreement (considered collectively) and each such covenant and obligation (considered individually) shall have been performed and complied with in all material respects.

 

4.2.3         Since the Effective Date, there shall not have occurred any state of facts, event, or change in circumstances that has had or could reasonably be expected to have a Material Adverse Effect.

 

4.2.4         Buyer shall have received from the Title Company commitments to issue as of the Closing Date a Title Policy with respect to each of the Port Angeles Mill, the Marysville Mill, the Gilchrist Mill, and the Prineville Property.

 

4.2.5         As of the Closing Date, there shall not be in effect any Legal Requirement or any Order that prohibits the transfer of any material portion of the Purchased Assets by Seller to Buyer.

 

4.2.6         Since the Effective Date, there shall not have been commenced or Threatened against Buyer or any Affiliate of Buyer any Proceeding (i) seeking material Damages or material other relief in connection with any aspect of this transaction, or (ii) that could reasonably be expected to have the effect of preventing or making illegal this transaction.

 

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4.2.7         Neither the consummation of this transaction nor the performance of Buyer’s obligations hereunder shall, directly or indirectly (with or without notice, lapse of time, or both), contravene, conflict with, result in a violation of, or cause Buyer or any Affiliate of Buyer to suffer any material adverse consequence under any applicable Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Authority since the Effective Date.

 

4.2.8         H-S-R Compliance shall have been obtained.

 

4.2.9         The Bankruptcy Court shall have entered the Approval Order and such order shall not have been stayed as of the Closing Date.

 

5.              Closing .

 

5.1            Time and Place of Closing . The Closing shall take place at the offices of Ball Janik LLP, 101 S.W. Main Street, Suite 1100, Portland, Oregon, or at such other location as the parties may mutually agree. Subject to the provisions of Section 8.1, the Closing shall take place concurrently with the closing under the KNRC Agreement, commencing at a time and on a date mutually acceptable to the parties within ten (10) days after the later of (i) H-S-R Compliance, and (ii) entry of the Approval Order.

 

5.2            Seller’s Closing Deliveries . At the Closing, Seller shall deliver, or cause to be delivered, to Buyer:

 

5.2.1         (i) Statutory Bargain and Sale Deeds, each in substantially the form attached as Exhibit B-1 , duly executed and acknowledged by Seller, conveying the Port Angeles Mill and the Marysville Mill, respectively, to Buyer, free and clear of all Liens suffered or created by Seller other than Permitted Encumbrances, and (ii) Statutory Special Warranty Deeds, each in substantially the form attached as Exhibit B-2 , duly executed and acknowledged by Seller, conveying the Gilchrist Mill and the Prineville Property, respectively, to Buyer, free and clear of all Liens suffered or created by Seller other than Permitted Encumbrances (the foregoing instruments are collectively referred to herein as the “ Deeds ”);

 

5.2.2         A Bill of Sale, in substantially the form attached as Exhibit C (the “ Bill of Sale ”), duly executed by Seller, conveying the Personal Property and the Inventory to Buyer, free and clear of all Liens other than Permitted Encumbrances;

 

5.2.3         An Assignment and Assumption Agreement, in substantially the form attached as Exhibit D (the “ Assignment and Assumption Agreement ”), duly executed by Seller and providing for (i) the assignment to Buyer of the Assigned Contracts, the Receivables, and the Intangible Property, and (ii) Buyer’s assumption of the Assumed Liabilities and indemnification of Seller in respect thereof (including indemnification in respect of any legal fees or other costs incurred by Seller in exercising its right to indemnity);

 

5.2.4         If the Permitting Process has not been completed by the Closing Date and if requested